(16)Stock Compensation Plans and Share-Based Compensation Awards

The Company provides share-based compensation awards to its employees under the 2018 Plan, which the Company adopted in conjunction with its IPO. The 2018 Plan became effective on May 22, 2018. A total of 7,792,162 shares of our Class A common stock are reserved for issuance under the 2018 Plan.

The following table summarizes share-based compensation expense, and the related income tax benefit recognized for share-based compensation awards:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(In thousands)

Share-based compensation expense	$	1,758	$	—	$	53,893	$	—
Income tax benefit	$	68	$	—	$	3,914	$	—

For share-based compensation awards, the Company recognized share-based compensation expense of $1.8 million and $53.9 million during the three and nine months ended September 30, 2018. No share-based compensation expense was recognized for the three and nine months ended September 30, 2017. The share-based compensation award plans provide for accelerated vesting under certain conditions.

Class D awards

The Company modified the Class D awards in connection with the IPO. All vesting conditions, with the exception of the consummation of a liquidity event, were waived as a result of the modification, including performance and service vesting conditions. On the modification date, the Company recorded share-based compensation expense based on the modification date fair value of $16.00 per share. As a result share-based compensation expense of $42.8 million was recognized for the nine months ended September 30, 2018 for the Class D awards, which represented the vesting of all 2,672,666 awarded shares. Prior to the consummation of the IPO, no liquidity event was probable and as such no share-based compensation expense had previously been recognized for these awards. On the modification date there were 15 employees or former employees who held Class D awards. All Class D awards granted and vested have a weighted average grant date fair value of $16.00.

Unit appreciation rights/Restricted stock awards

The Company assumed the EVO, LLC Unit Appreciation Rights Plan (“UAR Plan”) and issued shares of Class A common stock to members of our management and our current and former employees upon conversion of the outstanding UARs held by these individuals at the consummation of the IPO, resulting in newly issued RSAs. In connection with the assumption of the UAR Plan and issuance of Class A common stock, on the IPO date, the Company recorded share-based compensation expense based on the modification date fair value of $16.00 per share. As a result, share-based compensation expense of $0.3 million and $9.0 million was recognized for the three and nine months ended September 30, 2018 for the RSAs. As of the IPO, 543,323 awarded shares vested and 52,476 of those awards were surrendered for tax obligations. Prior to the consummation of the IPO, no liquidity event was probable and as such no share-based compensation expense had been recognized for these awards. On the modification date, there were 35 employees and former employees who held UARs. Immediately subsequent to the IPO, there were 63,452 unvested RSAs outstanding. During the period subsequent to the IPO, 4,125 awarded shares vested and 518 awards were forfeited. As of September 30, 2018, there are 58,809 unvested awards with unrecognized share-based compensation expense of $0.7 million. All RSAs granted, vested, forfeited, and unvested have a weighted average grant date fair value of $16.00.

Restricted stock units

The Company recognized share-based compensation expense for RSUs granted of $0.6 million and $0.8 million for the three and nine months ended September 30, 2018.

A summary of RSUs activity is as follows (in thousands, except per share data):


	Number outstanding	Weighted average fair value

Balance at December 31, 2017	—	$	—
Granted	522		16.19
Vested	—		—
Forfeited	(4)		16.00
Balance at September 30, 2018	518	$	16.19

As of September 30, 2018, total unrecognized share-based compensation expense related to outstanding RSUs was $7.6 million. Each RSU vests in equal annual vesting installments over a period of four years from the grant date and will settle in Class A common stock. The weighted average period outstanding for unvested RSUs is 3.5 years.

Stock options

The Company recognized share-based compensation expense for the stock options granted of $0.9 million and $1.3 million for the three and nine months ended September 30, 2018.

A summary of stock option activity is as follows (in thousands, except per share data):


	Number outstanding	Weighted average fair value


Balance at December 31, 2017	—	$	—
Granted	2,140		6.84
Exercised	—		—
Forfeited	(19)		6.68
Balance at September 30, 2018	2,121	$	6.84

As of September 30, 2018, total unrecognized share-based compensation expense related to unvested stock options was $13.1 million. The weighted average period outstanding for unvested stock options is 3.6 years. Each stock option vests in equal annual installments over a period of four years from grant date, and stock options expire no later than 10 years from the date of grant. For the purpose of calculating share-based compensation expense, the fair value of the stock option grants was determined through the application of the Black-Scholes model with the following assumptions:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2018		2018

Expected life (in years)		7.00		7.00
Weighted average risk-free interest rate		2.89%		3.04%
Expected volatility		33.99%		34.28%
Dividend yield		0.00%		0.00%
Weighted average fair value at grant date	$	9.23	$	6.84

The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the stock option from the date of the grant. The assumption on expected volatility is based on the historical volatility of a peer group of market participants as the Company has no established historical volatility. It is the Company’s intent to retain all profits for the operations of the business for the foreseeable future, as such the dividend yield assumption is zero. The Company applied the simplified method in determining the expected life of the stock options as the Company has no historical basis upon which to determine historical exercise periods. The Company based the assumptions of the expected term of the options as the expected term plus half of the remaining life through expiration. All stock options exercised will be settled in Class A common stock.